What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-10-28 · 127 added, 144 removed, 188 unchanged (59% of the section changed)

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We believe the strength of our brands and of our partner network place us in a strong position to continue to benefit from this market shift.

The LendingTree Loans business is presented as discontinued operations in the accompanying consolidated balance sheets, consolidated statements of operations and comprehensive income and consolidated cash flows for all periods presented.

for the discussion under the heading "Discontinued Operations," the analysis within Management's Discussion and Analysis of Financial Condition and Results of Operations reflects our continuing operations.

Except for the discussion under the heading "Discontinued Operations," the analysis within Management's Discussion and Analysis of Financial Condition and Results of Operations reflects our continuing operations.

Economic Conditions

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The pandemic has significantly impacted the economic conditions in the U.S., as federal, state and local governments react to the public health crisis, creating significant uncertainties in the U.S.

The downstream impact of various lockdown orders and related economic pullback affected our business and marketplace participants to varying degrees.

The downstream impact of various lockdown orders and related economic pullback are affecting our business and marketplace participants to varying degrees.

We are continuously monitoring the impacts of the current economic conditions related to the COVID-19 pandemic and the effect on our business, financial condition and results of operations.

Of our three reportable segments, the Consumer segment has been most impacted.

The impact to our Home and Insurance segments was much less substantial and these segments recovered by the end of 2020.

While forecasting the timeline of full recovery for the Consumer segment remains challenging, the momentum of recovery has increased in each quarter subsequent to the onset of the COVID-19 pandemic.

We are encouraged by the progress made, and continue to view the Consumer segment with optimism over the medium to long term.

Of our three reportable segments, the Consumer segment was most impacted as unsecured credit and the flow of capital in certain areas of the market have contracted.

The impact to our Home and Insurance segments was much less substantial.

Most of our selling and marketing expenses are variable costs that we adjust dynamically in relation to revenue opportunities to profitably meet demand.

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Recent Business Acquisitions

On February 28, 2020, we acquired an equity interest in Stash Financial, Inc.

(“Stash”) for $80.0 million.

On January 6, 2021, we acquired additional equity interest for $1.2 million.

On February 28, 2020, we acquired an equity interest in Stash for $80.0 million.

On January 6, 2021 we acquired an additional equity interest for $1.2 million.

Stash is a consumer investing and banking platform.

Stash brings together banking, investing, and financial services education into one seamless experience offering a full suite of personal investment accounts, traditional and Roth IRAs, custodial investment accounts, and banking services, including checking accounts and debit cards with a Stock-Back® rewards program.

In October 2021, we entered into a stock transfer agreement with third parties to sell a portion of our Stash equity securities.

See Note 7—Equity Investment and Note 18—Subsequent Event for additional information on the equity interest in Stash.

In the fourth quarter of 2021, we sold a portion of our investment in Stash for $46.3 million, realizing a gain on the sale of $27.9 million.

In January 2022, the Company acquired an equity interest in EarnUp for $15.0 million.

EarnUp is a consumer-first mortgage payment platform that intelligently automates loan payment scheduling and helps consumers better manage their money and improve their financial well-being.

See Note 7—Equity Investment for additional information on the equity interest in EarnUp.

North Carolina Office Properties

Our new corporate office is located on approximately 176,000 square feet of office space in Charlotte, North Carolina under an approximate 15-year lease that contractually commenced in April 2021.

With our expansion in North Carolina, in December 2016, we received a grant from the state that provides up to $4.9 million in reimbursements over 12 years beginning in 2017 for investing in real estate and infrastructure in addition to increasing jobs in North Carolina at specific targeted levels through 2020, and maintaining the jobs thereafter.

Our new corporate office is located on approximately 176,000 square feet of office space in Charlotte, North Carolina under an approximate 15-year lease that contractually commenced in the second quarter of 2021.

With our expansion in North Carolina, in December 2016, we received a grant from the state that provides up to $4.9 million in reimbursements through 2029 beginning in 2017 for investing in real estate and infrastructure in addition to increasing jobs in North Carolina at specific targeted levels through 2021, and maintaining the jobs thereafter.

Additionally, the city of Charlotte and the county of Mecklenburg provided a grant that will be paid over five years and is based on a percentage of new property tax we pay on the development of a corporate headquarters.

In December 2018, we received an additional grant from the state that provides up to $8.4 million in reimbursements over 12 years beginning in 2020 for increasing jobs in North Carolina at specific targeted levels through 2023, and maintaining the jobs thereafter.

In December 2018, we received an additional grant from the state that provides an aggregate amount up to $8.4 million in reimbursements through 2032 beginning in 2021 for increasing jobs in North Carolina at specific targeted levels through 2024, and maintaining the jobs thereafter.

Recent Mortgage Interest Rate Trends

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Typically, when interest rates decline, we see increased consumer demand for mortgage refinancing, which in turn leads to increased traffic to our website and decreased selling and marketing efforts associated with that traffic.

At the same time, lender demand for leads from third-party sources typically decreases, as there are more consumers in the marketplace seeking

refinancings and, accordingly, lenders receive more organic mortgage lead volume.

At the same time, lender

demand for leads from third-party sources typically decreases, as there are more consumers in the marketplace seeking refinancings and, accordingly, lenders receive more organic mortgage lead volume.

Due to lower lender demand, our revenue earned per consumer typically decreases, but with correspondingly lower selling and marketing costs.

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We dynamically adjust selling and marketing expenditures in all interest rate environments to optimize our results against these variables.

According to Freddie Mac, 30-year mortgage interest rates generally increased from a monthly average of 2.68% in December 2020 to a monthly average of 2.90% in September 2021.

On a quarterly basis, 30-year mortgage interest rates in the third quarter of 2021 averaged 2.87%, compared to 2.95% in the third quarter of 2020 and 3.00% in the second quarter of 2021.

According to Freddie Mac, 30-year mortgage interest rates increased from a monthly average of 3.10% in December 2021 to a monthly average of 4.17% in March 2022.

On a quarterly basis, 30-year mortgage interest rates in the first quarter of 2022 averaged 3.79%, compared to 2.88% in the first quarter of 2021 and 3.08% in the fourth quarter of 2021.

Typically, as mortgage interest rates rise, there are fewer consumers in the marketplace seeking refinancings and, accordingly, the mix of mortgage origination dollars will move toward purchase mortgages.

According to Mortgage Bankers Association ("MBA") data, total refinance origination dollars remained relatively consistent at 55% of total mortgage origination dollars in the third quarter of 2021 compared to 56% in the second quarter of 2021.

In the third quarter of 2021, total refinance origination dollars decreased 15% from the second quarter of 2021 and decreased 31% from the third quarter of 2020.

Industry-wide mortgage origination dollars in the third quarter of 2021 decreased 13% from the second quarter of 2021 and decreased 21% from the third quarter of 2020.

In October 2021, the MBA projected 30-year mortgage interest rates to increase during 2021, to an average 3.1% for the year.

According to Mortgage Bankers Association ("MBA") data, total refinance origination dollars decreased to 45% of total mortgage origination dollars in the first quarter of 2022 compared to 53% in the fourth quarter of 2021.

In the first quarter of 2022, total refinance origination dollars decreased 34% from the fourth quarter of 2021 and 60% from the first quarter of 2021.

Industry-wide mortgage origination dollars in the first quarter of 2022 decreased 23% from the fourth quarter of 2021 and 37% from first quarter of 2021.

In April 2022, the MBA projected 30-year mortgage interest rates to increase during 2022, to an average 4.8% for the year.

According to MBA projections, the mix of mortgage origination dollars is expected to move back towards purchase mortgages with the refinance share representing approximately 33% for 2022.

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Conversely, a weaker real estate market will typically lead to an increase in lender demand, as there are fewer consumers in the marketplace seeking mortgages.

According to Fannie Mae data, existing-home sales increased 2% in the third quarter of 2021 compared to the second quarter of 2021, and decreased 3% compared to the third quarter of 2020.

Fannie Mae predicts an overall increase in existing-home sales of approximately 6% in 2021 compared to 2020.

Results of Operations for the Three and Nine Months ended September 30, 2021 and 2020

Three Months Ended September 30, Nine Months Ended September 30,

Change 2021 2020 $

According to Fannie Mae data, existing-home sales decreased 3% in the first quarter of 2022 compared to the fourth quarter of 2021, and 4% compared to the first quarter of 2021.

Fannie Mae predicts an overall decrease in existing-home sales of approximately 9% in 2022 compared to 2021.

Results of Operations for the Three Months ended March 31, 2022 and 2021

Three Months Ended March 31,

(Dollars in thousands)

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Cost of revenue (exclusive of depreciation and amortization shown separately below)

15,561 13,895 1,666 12 %

Selling and marketing expense 204,157 197,462 6,695 3 %

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Change in fair value of contingent consideration — 797 (797) (100) %

Severance 47 — 47 100 % 47 190 (143) (75) %

Restructuring and severance 3,625 — 3,625 100 %

Litigation settlements and contingencies (27) 16 (43) (269) %

Total costs and expenses 286,112 274,657 11,455 4 %

Operating income (loss) 7,419 (16,117) 23,536 146 % 16,060 (2,916) 18,976 651 %

Operating loss (2,934) (1,907) (1,027) (54) %

Other (expense) income, net:

Interest expense, net (7,505) (10,215) (2,710) (27) %

Other income — — — — % 40,072 7 40,065 n/a

Other (expense) income (1) 40,072 (40,073) (100) %

(Loss) income before income taxes (10,440) 27,950 (38,390) (137) %

Income tax benefit 1 7,925 (7,924) (100) % 455 14,866 (14,411) (97) %

Income tax expense (383) (8,638) (8,255) (96) %

Net (loss) income from continuing operations (10,823) 19,312 (30,135) (156) %

(Loss) income from discontinued operations, net of tax (54) 166 (220) (133) % (3,516) (25,550) (22,034) (86) %

Loss from discontinued operations, net of tax (3) (263) (260) (99) %

Net (loss) income and comprehensive (loss) income $ (10,826) $ 19,049 $ (29,875) (157) %

Revenue increased in the third quarter of 2021 compared to the third quarter of 2020 due to increases in our Consumer and Home segments, partially offset by decreases in our Insurance segment and Other category.

Revenue increased in the first nine months of 2021 compared to the first nine months of 2020 due to increases in our Home, Consumer and Insurance segments, partially offset by a decrease in our Other category.

Revenue increased in the first quarter of 2022 compared to the first quarter of 2021 due to an increase in our Consumer segment, partially offset by decreases in our Home and Insurance segments.

Our Consumer segment includes the following products:

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Many of our Consumer segment products are not individually significant to revenue.

Revenue from our Consumer segment increased $51.6 million in the third quarter of 2021 from the third quarter of 2020, or 107%, primarily due to increases in our personal loans, credit cards, and small business loans products.

Revenue from our Consumer segment increased $28.2 million in the first nine months of

2021 from the first nine months of 2020, or 14%, primarily due to increases in our personal loans and small business loans products.

Revenue from our personal loans product increased $21.3 million to $33.8 million in the third quarter of 2021 from $12.5 million in the third quarter of 2020, or 170%, due to an increase in the number of consumers completing request forms as well as an increase in revenue earned per consumer.

Revenue from our personal loans product increased $21.1 million to $73.9 million in the first nine months of 2021 from $52.8 million in the first nine months of 2020, or 40%, primarily due to an increase in revenue earned per consumer, partially offset by a decrease in the number of consumers completing request forms.

Revenue from our Consumer segment increased $43.2 million in the first quarter of 2022 from the first quarter of 2021, or 75%, primarily due to increases in our personal loans, credit cards and small business loans.

Revenue from our credit cards product increased $12.2 million to $29.8 million in the first quarter of 2022 from $17.6 million in the first quarter of 2021, or 69%, primarily due to an increase in revenue earned per approval and an increase in the number of approvals.

Revenue from our personal loans product increased $20.3 million to $35.2 million in the first quarter of 2022 from $14.9 million in the first quarter of 2021, or 137%, primarily due to an increase in the number of consumers completing request forms and an increase in revenue earned per consumer.

For the periods presented, no other products in our Consumer segment represented more than 10% of revenue;

however, certain other Consumer products experienced notable changes.

Revenue from our credit cards product increased $20.3 million in the third quarter of 2021 compared to the third quarter of 2020, due to an increase in the number of approvals and an increase in revenue earned per approval.

Revenue from our small business loans product increased $11.4 million in the third quarter of 2021 compared to the third quarter of 2020, and increased $12.5 million in the first nine months of 2021 compared to the first nine months of 2020, due to loosening underwriting standards and improved flow of capital, as well as an increase in revenue earned per consumer.

The ongoing COVID-19 pandemic is anticipated to continue to impact our Consumer product revenues in the near-term.

however, certain other Consumer products experienced notable changes primarily due to the impact of economic conditions related to the COVID-19 pandemic.

Revenue from our small business loans product increased $10.7 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to increase in revenue earned per consumer and an increase in the number of consumers completing request forms.

Our Home segment includes the following products:

purchase mortgage, refinance mortgage, home equity loans, reverse mortgage loans, and real estate.

Revenue from our Home segment increased $33.6 million in the third quarter of 2021 from the third quarter of 2020, or 43%, primarily due to increases in revenue from our refinance mortgage, purchase mortgage, and home equity loans products.

Revenue from our Home segment increased $113.3 million in the first nine months of 2021 from the first nine months of 2020, or 49%, primarily due to increases in revenue from those same products.

Revenue from our refinance mortgage product increased $12.6 million in the third quarter of 2021 compared to the third quarter of 2020, and increased $77.3 million in the first nine months of 2021 compared to the first nine months of 2020, due to an increase in revenue earned per consumer, partially offset by a decrease in the number of consumers completing request forms.

Revenue from our home equity loans product increased $11.9 million in the third quarter of 2021 compared to the third quarter of 2020, and increased $21.8 million in the first nine months of 2021 compared to the first nine months of 2020.

Revenue from our purchase mortgage product increased $9.1 million in the third quarter of 2021 compared to the third quarter of 2020, and increased $14.6 million in the first nine months of 2021 compared to the first nine months of 2020.

Revenue from our home equity loans product and our purchase mortgage product increased due to a shift in both lender and consumer focus away from refinance products as well as an increase in revenue earned per consumer.

Revenue from our Insurance segment decreased $7.7 million to $84.8 million in the third quarter of 2021 from $92.5 million in the third quarter of 2020, or 8%, due to a decrease in revenue earned per consumer, partially offset by an increase in the number of consumers seeking insurance coverage.

Revenue from our Insurance segment increased $12.6 million to $260.7 million in the first nine months of 2021 from $248.2 million in the first nine months of 2020, or 5%, due to an increase in the number of consumers seeking insurance coverage, partially offset by a decrease in revenue earned per consumer.

Revenue in the Other category decreased $1.4 million in the first nine months of 2021 compared to the first nine months of 2020, primarily as we ceased reselling online advertising space during the first quarter of 2020.

Revenue from our Home segment decreased $26.2 million in the first quarter of 2022 from the first quarter of 2021, or 20%, primarily due to an decrease in revenue from our refinance mortgage product, partially offset by a increase in our home equity and purchase mortgage products.

Revenue from our refinance mortgage product decreased $47.6 million in the first quarter of 2022 compared to the first quarter of 2021, due to a shift in lender focus towards purchase products as well as a decrease in the number of consumers completing request forms as interest rates have risen.

Revenue from our home equity loans product increased $12.2 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to an increase in revenue earned per consumer.

Revenue from our purchase mortgage product increased $9.2 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to a shift in lender focus back towards purchase products as well as an increase in revenue earned per consumer.

Revenue from our Insurance segment decreased $6.6 million to $80.0 million in the first quarter of 2022 from $86.6 million in the first quarter of 2021, or 8%, due to an decrease in the number of consumers seeking insurance coverage, partially offset by an increase in revenue earned per consumer.

Cost of revenue

Cost of revenue consists primarily of costs associated with compensation and other employee-related costs (including stock-based compensation) relating to internally-operated customer call centers, third-party customer call center fees, costs for online advertising resold to third parties, credit scoring fees, credit card fees, website network hosting and server fees.

Cost of revenue increased in the third quarter of 2021 from the third quarter of 2020, primarily due to an increase in compensation and benefits of $1.3 million.

Cost of revenue increased in the first nine months of 2021 from the first nine months of 2020, primarily due to an increase in compensation and benefits of $3.1 million, partially offset by a $2.3 million decrease in credit card fees.

Cost of revenue as a percentage of revenue decreased to 5% in the third quarter and first nine months of 2021 compared to 6% in the third quarter and first nine months of 2020.

Cost of revenue increased in the first quarter of 2022 from the first quarter of 2021, primarily due to a $1.4 million increase in website network hosting and server hosting fees.

Cost of revenue as a percentage of revenue remained consistent at 5% for each of the first quarters of 2022 and 2021.

Selling and marketing expense

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Advertising production costs are expensed in the period the related ad is first run.

Selling and marketing expense increased in the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 primarily due to the increases in advertising and promotional expense discussed below.

Selling and marketing expense increased in the first quarter of 2022 compared to the first quarter of 2021 primarily due to increases in advertising and promotional expense discussed below.

Additionally, compensation and benefits increased $1.3 million as a result of an increase in headcount.

Advertising and promotional expense is the largest component of selling and marketing expense, and is comprised of the following:

Three Months Ended September 30, Nine Months Ended September 30,

Change 2021 2020 $

Three Months Ended March 31,

(Dollars in thousands)

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This relationship exists for our Home, Consumer and Insurance segments.

We adjusted our advertising expenditures in the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 in response to changes in Network Partner demand on our marketplace as a result of the ongoing COVID-19 pandemic discussed above.

We will continue to adjust selling and marketing expenditures dynamically in relation to this and in response to anticipated revenue opportunities.

We adjusted our advertising expenditures in the first quarter of 2022 compared to the first quarter of 2021 in response to changes in Network Partner demand on our marketplace.

We will continue to adjust selling and marketing expenditures dynamically in response to anticipated revenue opportunities.

General and administrative expense

General and administrative expense consists primarily of compensation and other employee-related costs (including stock-based compensation) for personnel engaged in finance, legal, tax, corporate information technology, human resources and executive management functions, as well as facilities and infrastructure costs and fees for professional services.

General and administrative expense increased in the third quarter of 2021 compared to the third quarter of 2020, primarily due to increases in compensation and benefits of $4.3 million and technology expense of $1.3 million.

General and administrative expense increased in the first nine months of 2021 compared to the first nine months of 2020, primarily due to increases in compensation and benefits, technology expense, and facilities expense of $14.5 million, $3.6 million, and $2.4 million, respectively.

General and administrative expense as a percentage of revenue decreased to 13% in the third quarter of 2021 compared to 15% in the third quarter of 2020, and remained consistent at 14% in both the first nine months of 2021 and 2020.

General and administrative expense increased in the first quarter of 2022 compared to the first quarter of 2021, primarily due to increases in technology and other tax expense of $1.5 million and $1.8 million, respectively.

This was partially offset by decreases in compensation and benefits and professional fees of $2.4 million and $1.2 million, respectively.

General and administrative expense as a percentage of revenue remained consistent at 13% for each of the first quarters of 2022 and 2021.

Product development

Product development expense consists primarily of compensation and other employee-related costs (including stock-based compensation) and third-party labor costs that are not capitalized, for employees and consultants engaged in the design, development, testing and enhancement of technology.

Product development expense increased in the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 as we continued to invest in internal development of new and enhanced features, functionality and business opportunities that we believe will enable us to better and more fully serve consumers and Network Partners.

The increase in depreciation expense in the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 was primarily the result of depreciation on assets related to our new corporate office, which lease contractually commenced in the second quarter of 2021.

Product development expense increased in the first quarter of 2022 compared to the first quarter of 2021 as we continued to invest in internal development of new and enhanced features, functionality and business opportunities that we believe will enable us to better and more fully serve consumers and Network Partners.

Amortization of intangibles

The decrease in amortization of intangibles in the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 was due to certain intangible assets associated with our recent business acquisitions becoming fully amortized.

The decrease in amortization of intangibles in the first quarter of 2022 compared to the first quarter of 2021 was due to certain intangible assets associated with our recent business acquisitions becoming fully amortized.

Contingent consideration

During the third quarter and first nine months of 2021, we recorded contingent consideration gains of $0.2 million and $8.2 million, respectively, due to adjustments in the estimated fair value of the remaining earnout payment related to the QuoteWizard acquisition.

During the third quarter and first nine months of 2020, we recorded aggregate contingent consideration expense of $6.7 million and $7.7 million, respectively, due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions.

For the third quarter of 2020, the contingent consideration expense for the QuoteWizard and Ovation acquisitions was $6.6 million and $0.1 million, respectively.

For the first nine months of 2020, the contingent consideration expense for the QuoteWizard, Ovation and SnapCap acquisitions was $6.4 million, $1.3 million and $0.1 million, respectively.

During the first quarter of 2022, we did not record contingent consideration expense.

All earnouts were completed prior to 2022.

During the first quarter of 2021, we recorded an aggregate gain of $0.8 million due to adjustments in the estimated fair value of the earnout payments related to the QuoteWizard acquisition.

Restructuring and severance

In the first quarter of 2022, we completed a workforce reduction of approximately 75 employees.

The Company incurred total expense of $3.6 million consisting of employee separation costs of $2.5 million and non-cash compensation expense of $1.1 million due to the accelerated vesting of certain equity awards.

All employee separation costs are expected to be paid by the first quarter of 2023.

Interest expense

Interest expense decreased in the third quarter of 2021 compared to the third quarter of 2020, primarily due to a loss on debt extinguishment of $7.8 million recognized upon the partial repurchase of the 0.625% Convertible Senior Notes due June 1, 2022 (the “2022 Notes”) in July 2020.

Interest expense increased in the first nine months of 2021 compared to the first nine months of 2020 primarily due to the issuance of the 0.50% Convertible Senior Notes due July 15, 2025 (the “2025 Notes”) as well as the partial repurchase of the 2022 Notes in July 2020.

Interest expense was recognized on the 2025 Notes during the entire first nine months of 2021, compared to a partial period of the first nine months of 2020.

This incremental interest expense was partially offset by lower interest expense on the 2022 Notes in the first nine months of 2021 compared to the first nine months of 2020 as a result of the July 2020 partial repurchase of the notes.

The overall increase was further offset by the loss on debt extinguishment of $7.8 million recognized in July 2020, noted above.

See Note 13—Debt for additional information on the issuance of the 2025 Notes and the partial repurchase of the 2022 Notes.

For the first nine months of 2021, other income primarily consists of a $40.1 million gain on our investment in Stash as a result of an adjustment to the fair value based on observable market events.

Interest expense decreased in the first quarter of 2022 compared to the first quarter of 2021 primarily due to the adoption of ASU 2020-06 on January 1, 2022, whereby we derecognized the remaining debt discounts on the 2022 Notes and 2025 Notes and therefore no longer recognize any amortization of debt discounts as interest expense partially offset by an increase in interest from our Term Loan Facility.

See Note—2 Significant Accounting Policies for additional information.

For the first quarter of 2021, other income primarily consists of a $40.1 million gain on our investment in Stash as a result of an adjustment to the fair value based on observable market events.

See Note 7—Equity Investment for additional information on the equity interest in Stash.

Income tax expense

For the third quarter and first nine months of 2021, the effective tax rate varied from the federal statutory rate of 21% in part due to an excess tax expense of $0.9 million and an excess tax benefit of $7.4 million, respectively, resulting from employee exercises of stock options and vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes.

For the third quarter and first nine months of 2020, the effective tax rate varied from the federal statutory rate of 21% in part due to a tax benefit of $0.2 million and $2.0 million, respectively, recognized for excess tax benefits resulting from employee exercises of stock options and vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes.

The effective tax rate for the first nine months of 2020 was also impacted by a tax benefit of $6.1 million for the impact

of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.

See Note 12—Income Taxes for additional information.

Discontinued operations

The results of discontinued operations include the results of the LendingTree Loans business formerly operated by our wholly-owned subsidiary, Home Loan Center, Inc., or HLC.

The sale of substantially all of the assets of HLC, including the LendingTree Loans business, was completed on June 6, 2012.

HLC filed a petition under Chapter 11 of the United States Bankruptcy Code on July 21, 2019, which was converted to Chapter 7 of the United States Bankruptcy Code on September 16, 2019.

As a result of the voluntary bankruptcy petition, as of the initial July 21, 2019 bankruptcy petition filing date, HLC and its consolidated subsidiary were deconsolidated from LendingTree’s consolidated financial statements.

The effect of such deconsolidation was the elimination of the consolidated assets and liabilities of HLC (and its consolidated subsidiary) from LendingTree’s consolidated balance sheets.

During the HLC bankruptcy, a bar date for claims against HLC was set, establishing a deadline for all HLC’s creditors to assert any claim they may have had against HLC.

Distributions were made to holders of allowed claims deemed timely filed.

After all distributions to creditors were made and HLC’s Chapter 7 bankruptcy estate was fully administered, the HLC bankruptcy case was closed on July 14, 2021.

Prior to the bankruptcy filing, losses from the LendingTree Loans business were primarily due to litigation settlements and contingencies and legal fees associated with legal proceedings.

The results of discontinued operations include litigation settlements and contingencies and legal fees associated with legal proceedings against LendingTree, Inc.

or LendingTree, LLC that arose due to the LendingTree Loans business or the HLC bankruptcy filing.

See Note 17—Discontinued Operations to the consolidated financial statements included elsewhere in this report for more information.

For the first quarter of 2022, the effective tax rate varied from the federal statutory rate of 21% primarily due to excess tax expense of $2.5 million and the effect of state taxes.

For the first quarter of 2021, the effective tax rate varied from the federal statutory rate of 21% primarily due to the effect of state taxes.

Segment Profit

Three Months Ended September 30, Nine Months Ended September 30,

Change 2021 2020 $

Three Months Ended March 31,

(Dollars in thousands)

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See Note 15—Segment Information in the notes to the consolidated financial statements for additional information on segments and a reconciliation of segment profit to pre-tax income from continuing operations.

Consumer segment profit increased $23.1 million in the third quarter of 2021 from the third quarter of 2020, and increased $18.6 million in the first nine months of 2021 from the first nine months of 2020, primarily due to an increase in revenue, partially offset by a corresponding increase in selling and marketing expense.

We continue to build momentum in the Consumer segment amid increased demand from both consumers and our Network Partners.

Lender demand in our personal loans product is strong, with new lenders joining our marketplace during the third quarter of 2021.

While consumer demand for our personal loans product has been relatively muted in part due to government stimulus programs, we expect demand to return to pre-pandemic levels as consumer savings balances begin to normalize.

Credit card issuer budgets and payouts continue to increase;

however, the profitability of our credit card product remains constrained as we continue to re-invest incremental revenue into the product to capture wallet share.

Within our small business loans product, our concierge business continues to be an

important growth driver following the conclusion of the Paycheck Protection Program.

Our student loans product benefited from the annual in-school lending season, but remains constrained due to reduced lender budgets.

While demand for student loan refinancing has decreased with the moratorium on federal student loan payments extended to January 2022, we expect demand to return once the moratorium concludes.

We continue to view the Consumer segment with optimism and are pleased with the pace of its recovery.

Home segment profit increased $16.4 million in the third quarter of 2021 from the third quarter of 2020, and increased $19.7 million in the first nine months of 2021 from the first nine months of 2020, primarily due to an increase in revenue, partially offset by a corresponding increase in selling and marketing expense.

While refinance activity decelerates from the peak experienced earlier this year, the Home segment continues to perform well as we are an integral part of our Network Partners' marketing model.

Mortgage revenue per lead increased 78%, and home equity revenue per lead increased 79%, in the third quarter of 2021 compared to the third quarter of 2020.

While there is uncertainty over the interest rate environment and corresponding impact to refinance activity, we are confident in our market-leading position, key partner status, and flexible business model.

Insurance segment profit decreased $10.4 million in the third quarter of 2021 from the third quarter of 2020, primarily due to a decrease in revenue and an increase in selling and marketing expense.

Insurance segment profit decreased $5.0 million in the first nine months of 2021 from the first nine months of 2020, primarily due to an increase in selling and marketing expense, partially offset by an increase in revenue.

The Insurance segment experienced challenging market factors in the third quarter of 2021.

Personal lines insurance carriers are experiencing rising loss costs as the economy reopens and drivers return to the road.

Higher catastrophe losses from major storms have also pressured carrier earnings, resulting in an industry-wide reduction in carrier marketing budgets.

We view these factors as transitory and are optimistic that the Insurance segment will return to historic earnings and growth in the near term.

Our investments in other insurance categories, including our Medicare agency, property and casualty agency, and in-dealership automobile product, continue to make significant progress and provide diversification benefits.

Our inbound channel continued to deliver record performance and we observed significant growth in the home category as we increasingly leverage our presence in the mortgage industry.

Revenue in our Home segment was $101.9 million in the first quarter of 2022, a decrease of 20% from the first quarter of 2021, with segment profit of $35.9 million in the first quarter of 2022, a decrease of 8% from the first quarter of 2021, as we experienced historically high refinance volumes in the first quarter of 2021.

The 30-year mortgage interest rates, according to Freddie Mac, increased from a quarterly average of 2.88% in the first quarter 2021 to 3.79% in the first quarter of 2022.

Our leadership position in the mortgage marketplace generated improved unit economics throughout the quarter, even as refinancing activity slowed significantly.

Mortgage revenue per consumer increased in the first quarter of 2022 compared to the first quarter of 2021.

Home equity continues to grow as a part of our overall product mix, achieving record revenue with increases of 112% in the first quarter of 2022 compared to the first quarter of 2021.

Revenue per consumer increased in the first quarter of 2022 compared to the first quarter of 2021.

Purchase revenue increased 90% in the first quarter of 2022 compared to the first quarter

Persistently low home inventory and higher home prices continue to suppress purchase application volumes nationally, but revenue earned per consumer in this category continues to expand, as lenders are pivoting more towards the product with refinancing activity subsiding.

Our lender partners tend to rely on us even more at this point in the interest rate cycle to help meet their origination goals.

In turn, we focus on optimizing higher converting products for them such as cash-out refinance and home equity loans.

Despite the recent sharp uptick in interest rates, loans secured with home equity remain the lowest cost source of financing for most consumers that own a home.

Revenue in our Consumer segment increased 75% to $101.1 million in the first quarter of 2022 compared to the first quarter of 2021.

Segment profit in our Consumer segment increased 73% to $42.5 million, in the first quarter of 2022 compared to the first quarter of 2021.

Personal loans revenue of $35.2 million increased 137% in the first quarter of 2022 from the first quarter of 2021, as consumer demand continued to increase throughout the quarter.

We expect this positive trend to continue as credit card balances are increasing at an unprecedented rate and are projected to reach a record level by the middle of this year.

Increased card balances should drive increased demand for the product as consumers look to consolidate this higher cost debt with personal loan products.

Our credit card business recovery continues, generating revenue of $29.8 million in the first quarter of 2022, an increase of 69% from the first quarter of 2021.

Revenue per approval increased in the first quarter of 2022 from the first quarter of 2021, as issuer partners expanded their marketing budgets.

We are focused on optimizing the increasing demand for travel reward cards as restrictions continue to lift and mandates expire.

Margins in the segment remain lower than historical levels.

We are working to diversify our marketing mix, actively pursuing more profitable marketing channels and partnerships to expand our reach and attract more consumers.

We expect these actions will lead to improved unit economics over time.

Small business growth continues at a strong pace, achieving record revenue in the first quarter, with revenue increasing 138% in the first quarter of 2022 from the first quarter of 2021.

Our lender network continues to grow as we onboard additional partners and diversify our marketplace for borrowers.

Our Premium Marketplace offering, launched last quarter, sorts incoming borrower traffic into risk tiers.

The result is funnel optimization that has driven increased conversions and revenue per lead.

We believe the fourth quarter of 2021 was the trough for the Insurance segment, as the challenging underwriting environment for carriers begins to ease with premium rate increases.

Our business has begun to recover as a result, with revenue of $80.0 million in the first quarter of 2022, down 8% from the first quarter of 2021 but up 22% from the fourth quarter of 2021, and segment profit of $21.1 million in the first quarter of 2022, down 36% from the first quarter of 2021 and up 1% from the fourth quarter of 2021.

We are encouraged by conversations we are having with our carrier partners as they increase marketing budgets.

Evidence of returning demand can be seen in our revenue per consumer, which increased in the first quarter of 2022 compared to the first quarter of 2021.

The costs of those leads, however, increased as we prioritized quality for our partners, resulting in a 26% margin in the first quarter of 2021, which is significantly lower than the business has historically delivered.

We expect improving margins in the second half of the year as partner demand continues to recover and our marketing costs improve.

Auto insurance rate increases from our clients are continuing to be approved in states across the country, driving improved appetite for new policy acquisition.

Auto revenue in the first quarter of 2022 increased from the fourth quarter of 2021, and we expect growth to continue as the business returns to a normalized operating environment.

We remain committed to capturing additional share of carrier budgets by focusing on conversion rate and lead quality and moving quickly to ensure alignment with carrier targets to meet and exceed their goals.

Consumer demand, as measured by traffic to our sites, remains strong, and we expect this trend to continue as drivers shop for new policies following these rate increases.

We continue to diversify our Insurance business by entering new markets to expand our growth opportunities and increase market share.

Adjusted EBITDA

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Items are considered one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules.

For the periods presented below, there are no adjustments for one-time items.

For the periods presented below, one-time items consisted of the franchise tax caused by the equity investment gain in Stash.

Non-Cash Expenses that are Excluded from Adjusted EBITDA

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net (loss) income from continuing operations $ (10,823) $ 19,312

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Depreciation 4,854 3,718

Severance 47 — 47 190

Restructuring and severance 3,625 —

Loss on impairments and disposal of assets 431 348

Unrealized gain on investments — — (40,072) —

Gain on investments — (40,072)

Non-cash compensation expense 13,997 16,436

Franchise tax caused by equity investment gain 1,500 —

Change in fair value of contingent consideration — 797

2 unchanged sentences

Interest expense, net 7,505 10,215

Income tax expense (benefit) (1) (7,925) (455) (14,866)

Income tax expense 383 8,638

Adjusted EBITDA $ 29,371 $ 30,749

Financial Position, Liquidity and Capital Resources

As of September 30, 2021, we had $215.3 million of cash and cash equivalents, compared to $169.9 million of cash and cash equivalents as of December 31, 2020.

In the first quarter of 2021, we acquired additional equity interest in Stash for $1.2 million.

See Note 7—Equity Investment to the consolidated financial statements included elsewhere in this report for additional information on the equity interest in Stash.

As of March 31, 2022, we had $196.7 million of cash and cash equivalents, compared to $251.2 million of cash and cash equivalents as of December 31, 2021.

In the first quarter of 2022, we acquired an equity interest in EarnUp Inc.

("EarnUp") for $15.0 million.

See Note 7—Equity Investment to the consolidated financial statements included elsewhere in this report for additional information on the equity interest.

On June 1, 2022 the outstanding balance of $169.7 million of our 0.625% Convertible Senior Notes will mature.

It is our intent to use proceeds from the Term Loan Facility to settle the notes.

See Note 12—Debt for additional information.

We expect our cash and cash equivalents and cash flows from operations to be sufficient to fund our operating needs for the next twelve months and beyond.

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We will continue to monitor the impact of the ongoing COVID-19 pandemic on our liquidity and capital resources.

We expect our cashflow from operating activities to be negatively impacted by the economic recession.

Credit Facility

On September 15, 2021, we entered into a credit agreement (the “Credit Agreement”), consisting of a $200.0 million revolving credit facility (the “Revolving Facility”), which matures on September 15, 2026, and a $250.0 million delayed draw term loan facility (the “Term Loan Facility” and together with the Revolving Facility, the “Credit Facility”), which matures on September 15, 2028 to the extent the loans thereunder will be drawn.

The delayed draw commitments under the Term Loan

Facility will be available until June 1, 2022.

The delayed draw commitments under the Term Loan Facility will be available until June 1, 2022.

The proceeds of the Revolving Facility can be used to finance working capital, for general corporate purposes and any other purpose not prohibited by the Credit Agreement.

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See Note 12—Debt for additional information.

As of October 28, 2021, we have outstanding a $0.2 million letter of credit under the Revolving Facility, and the remaining borrowing capacity is $199.8 million.

No term loans have been drawn under the Term Loan Facility as of October 28, 2021.

As of May 5, 2022, we have outstanding a $0.2 million letter of credit under the Revolving Facility and the remaining borrowing capacity under the Revolving Facility is $199.8 million.

No term loans have been drawn under the Term Loan Facility as of May 5, 2022.

Cash Flows from Continuing Operations

Our cash flows attributable to continuing operations are as follows:

Nine Months Ended

September 30,

Three Months Ended

(in thousands)

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Net cash used in investing activities (18,465) (11,733)

Net cash (used in) provided by financing activities (15,192) 197,375

Net cash used in financing activities (46,098) (5,000)

Cash Flows from Operating Activities

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In addition, our uses of cash from operating activities include compensation and other employee-related costs, other general corporate expenditures, litigation settlements and contingencies, certain contingent consideration payments, and income taxes.

Net cash provided by operating activities attributable to continuing operations decreased in the first nine months of 2021 from the first nine months of 2020 primarily due to unfavorable changes in accounts receivable, partially offset by favorable changes in accounts payable, accrued expenses and other current liabilities, and income taxes receivable.

Net cash provided by operating activities attributable to continuing operations increased in the first three months of 2022 from the first three months of 2021 primarily due to favorable changes in accounts receivable and accounts payable, accrued expenses and other current liabilities, partially offset by unfavorable changes in prepaid and other current assets.

Cash Flows from Investing Activities

Net cash used in investing activities attributable to continuing operations in the first nine months of 2021 of $31.7 million consisted of capital expenditures of $30.5 million primarily related to internally developed software and leasehold improvements for our new principal corporate offices, as well as the purchase of an additional $1.2 million equity interest in Stash, described above.

Net cash used in investing activities attributable to continuing operations in the first nine months of 2020 of $100.4 million consisted of the initial purchase of an $80.0 million equity interest in Stash and capital expenditures of $20.4 million primarily related to internally developed software and leasehold improvements for our new principal corporate offices.

Net cash used in investing activities attributable to continuing operations in the first three months of 2022 of $18.5 million consisted of capital expenditures of $3.5 million primarily related to internally developed software, as well as the purchase of a $15.0 million equity interest in EarnUp.

Net cash used in investing activities attributable to continuing operations in the first three months of 2021 of $11.7 million consisted of capital expenditures of $10.6 million primarily related to internally developed software and leasehold improvements for our new principal corporate offices, as well as the purchase of an additional $1.2 million equity interest in Stash.

Cash Flows from Financing Activities

Net cash used in financing activities attributable to continuing operations in the first nine months of 2021 of $15.2 million consisted primarily of $6.7 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options, as well as $6.0 million for the payment of debt issuance costs and $2.5 million paid for the original issue discount on the undrawn Term Loan Facility.

Net cash provided by financing activities attributable to continuing operations in the first nine months of 2020 of $197.4 million consisted primarily of $575.0 million of gross proceeds from the issuance of the 2025 Notes, partially offset by $233.9 million paid to repurchase a portion of the 2022 Notes, a net $47.4 million paid for convertible note hedge and warrant transactions, $75.0 million of net repayments on our revolving credit facility, and $16.4 million for the payment of debt issuance costs.

Net cash used in financing activities attributable to continuing operations in the first three months of 2022 of $46.1 million consisted primarily of $43.0 million for the repurchase of our stock and $3.1 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options.

Net cash used in financing activities attributable to continuing operations in the first three months of 2021 of $5.0 million consisted primarily of $ $4.8 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis